If labor was perfectly mobile and suddenly there were massive dislocations requiring workers to relocate, you’d expect an uptick in the number of workers moving, right? A corollary is that if you do not see an up-tick in the number of workers moving, then either there was no massive dislocations or there is not perfectly mobility. Take the second case: with imperfect immobility workers would like to take jobs in other places, but they can’t. This looks like sticky wages. Sticky wages make aggregate demand effects important. These data suggesting labor mobility did not increase in the last recession, then, are consistent with both structural and cyclical problems in the labor market.

9 Responses to “Labor mobility”

I think this labor mobility story needs a model. If we had perfect labor mobility, how much lower would we expect unemployment to be?

First of all, you need to show this: “suddenly there were massive dislocations requiring workers to relocate”. Most of the low unemployment states, like North Dakota, have very low population, so they couldn’t take many migrants before their unemployment rate would go up significantly. There is no economic Eden somewhere else in the USA- most places have high unemployment, while those that don’t are small. If we were having sturcutural employment say in construction, unemployment would be concentrated in areas with housing bubbles. Michigan had no housing bubble, but they are exposed to a sector where aggregate demand falls rapidly in recessions (automobile, a durable good). And we are seeing their high unemployment rate resulting from a drop in demand for these goods. Once demand for autos comes back, unemployment will fall rapidly in Michigan, as it did in the 1980s once aggregate demand returned after the double dip recession.

I’m not saying you have to make this structural unemployment model, but too much of the structural unemployment story is pure assertion, like this post. It’s kind of surprising how popular the structural unemployment theory is despite the lack of supporting evidence. If you think structural unemployment, along with AD problems, explains the current unemployment problem, we need to know how much of it is structural. For me, I see no evidence of a significant increase in structural unemployment, with almost all of the rise in unemployment being demand determined. If you think otherwise, then show us what the magnitude is. You filed this post under evidence, so show us evidence.

I agree, we need a model. But the post didn’t assert anything. The common sense partial equilibrium “model” would have labor mobility increasing if there were no frictions. This is obvious, no?

If the naive story is wrong, then we need a model connecting labor separations and mobility that gives the general equilibrium, counter-intuitive result that there would be no change in mobility, relative to trend.

BTW, there’s nothing special about AD based frictional accounts of unemployment. They shouldn’t be seen as the default, go-to truth of the matter. If structural accounts need to have a full-blown model, then so do frictional stories. For example, I think it would be tough to come up with an standard AD story that explains persistent unemployment but robust income growth (i.e. jobless recoveries).

But another point of the post was that the same story can result in frictional and structural unemployment. The obsession with this decomposition may be a misplaced distraction.

“But the post didn’t assert anything. The common sense partial equilibrium “model” would have labor mobility increasing if there were no frictions.”

My rhetoric is taking a “common sense partial equilibrium model” to be an assertion. I don’t know that that’s the same model I work with. If all the auto workers move out of Michigan, then there’s nobody left to be recalled. (BTW worker recalls is strong evidence against structural unemploymentand strong evidence for AD). Naturally some should leave as Michigan should move to a lower level of population, but how much mobility is enough? The current level may be enough- depends on the model.

“For example, I think it would be tough to come up with an standard AD story that explains persistent unemployment but robust income growth (i.e. jobless recoveries).” Aggregate demand hasn’t recovered to trend, so why should employment? Productivity and population are growing, so more GDP can be produced without increasing hiring. Once GDP returns to trend, employment will return to under 6%. I don’t see why that’s inconsistent. It’s just a version of Okun’s Gap (my model). You can see this in the data- jobs don’t return until the economy returns a zero output gap. There’s a model and data.

“But another point of the post was that the same story can result in frictional and structural unemployment. The obsession with this decomposition may be a misplaced distraction.”

I agree that the obsession with this decomposition is misplaced- that’s why theory that can’t show any evidence shouldn’t be devoted much time to, let alone obsessed about. I’m not obsessed with structural unemployment- I’d love nothing better than to stop focusing on what is a non-issue. If it can’t be shown at structural unemployment is significant, then it shouldn’t be a significant part of the debate.

The output gap thing was probably unclear- The jobless recoveries of the early 1990s and early 2000s (and the current one) mean that the recession was over and output was rising, but employment failed to recover. As you can see in the output gap persisted into 2003 for example, far after the end of the recession, so this makes total sense if employment is a function of the output gap.

I don’t get your Michigan example. If everyone left (as a result of the decrease in demand for cars at the start of the recession?) then that would show up in the mobility data as an increase in mobility, right? We don’t see spikes or any increases at all, at any point in the recession.

BTW, you’re a funny guy. I say that the distinction between structural and frictional doesn’t matter. You agree and then say this implies that only frictional unemployment matters. I suppose because the distinction between the Humors doesn’t matter Blood is the most import Humor and that bloodletting is called for. Weird.

Regarding Michigan, what I’m saying is that it is clearly not structural. Durable goods purchases like automobiles fall in recession, and thsi reession is no different. There was no major change in technology or labor productivity that changed. Maybe there’s another explanation for structural unemployment in Michigan I’m ignoring, but I don’t see how it hanged much in the recession. Detroits woes has been ongoing, and people have been leaving Michigan in good times and bad. I don’t see why more people would leave, as there’s very few vacancies anywhere else, and many workers will be recalled once demand recovers. If you have an estimate of struutural unemployment in Michigan (or elsewhere) and some estimate of the effects of a policy change that will significantly lower strucutural unemployment, I’d love to hear it, but I just don’t see it.

Regarding my funniness, what I meant is that strucutural (or fritional) unemployment exists, I don’t think that we have many policy changes that can lower it. If you look at unemployment pre-WW1 when the size of government was much lower, unemployment insurance small to non-existent, home ownership is much lower, etc. the full employment unemployment rate was not much different (4-5%). So given that these policies or onditions were not in place, how can eliminating “bad” policies get us to a much lower unemployment rate? So I don’t see much scope for policy changes, nor do I see a big change in structural unemployment due to policy changes. Again, I’m willing to reconsider if I can see some kind of evidence to the contrary, but I still haven’t seen it.

You seem to be arguing that labor isn’t completely mobile. If so, your story predicts unemployment that looks structural and frictional. What are we fighting about?

Evidence that bad institutions matter for determining the unemployment rate: Europe. Europe actually had lower unemployment rates than the US at one time. They had bad institutions for a while before that. This seems like a slam dunk case against “bad” institutions. However, Sargent and Ljungqvist have a model that suggests if workers lose lots of human capital upon losing their jobs then bad institutions start causing bad outcomes but if no human capital is lost then the bad institutions don’t much matter. To explain Europe vs the US, they posit that the amount of human capital lost upon losing ones job has increased over time. This lead to high unemployment in Europe.

To explain the current jobless recovery just mix a lot of lost human capital with new/bad institutions.

This idea of “European unemployment” is very overstated. Looking at the Netherlands or Austria, things in that part of Europe look pretty nice. Unemployment under 6% for the entire decades of the 2000s. Maybe they’re not losing human capital like the French? It’s weird how that works.

I don’t really know what we’re arguing about either- I said I was unconvinced but open to being convinced, but the argument needs to have a solid model with data to back it up. I’m still waiting for this. Until then, the argument *against* structural unemployment being a significant factor in the current recession is infinitely more solid and convincing than the argument *for* structural unemployment mattering.